What is the pass-through entity (PTE) tax?
The PTE tax allows an entity to pay a tax on behalf of their partners, members, or shareholders. Partnerships, limited liability companies (LLC), and S corporations may elect to pay PTE tax if owners who collectively control more than 50% of the entity decide to do so. The election is binding on all owners.
How is PTE calculated?
PTE tax is calculated by multiplying the entity’s Minnesota source income by the highest Minnesota individual income tax rate, which is currently 9.85%.
How do I elect to pay PTE tax?
You can elect to pay the PTE tax by filing Schedule PTE, Pass-Through Entity Tax, no later than the due date or extended due date of the entity’s income tax return.
Can the PTE tax election be revoked?
No, the PTE tax election cannot be revoked once made.
Which entities qualify for the PTE tax election?
Partnerships, limited liability companies (LLC) taxed as a S Corporation or partnership, and S corporations qualify to make the PTE election if no partner, member, or shareholder is a partnership, LLC, or corporation, other than a disregarded entity.
When does PTE tax become available for election?
The PTE tax election is available for an entity’s tax years beginning after December 31, 2020.
I am not a resident of Minnesota. Can the PTE tax election satisfy my Minnesota filing requirement?
Yes. The PTE Tax election may satisfy your Minnesota filing requirement if you meet all these qualifications:
- You are a full-year Minnesota nonresident who is a partner, member, or shareholder in an electing entity
- Your only Minnesota source income is from an entity or entities that are filing and paying composite tax or PTE tax on your behalf
Owners who receive a share of gross profit or income from an installment sale reported to them by a partnership or S corporation are not eligible to have the PTE tax satisfy their filing requirement.
Can a single member limited liability company (LLC) make the PTE tax election?
No, single-member LLCs are not eligible to make the PTE tax election.
How do I make an estimated pass-through entity (PTE) tax payment?
PTE estimated payments are made in e-Services using the same method as estimated tax payments for nonresident withholding, composite income tax, and other entity level income taxes. For more business resources visit the information for businesses on our website.
How do I calculate my estimated tax installments?
To calculate the entity’s estimated PTE tax liability:
- Complete the worksheet in the instructions of Form M3, Partnership Return, or Form M8, S Corporation Return to determine the Minnesota source distributive income as if the owner was a 100% owner.
- Multiply the result by 9.85%.
The additional tax charge (ATC) does not apply if the entity’s payments during the year are equal to or greater than the lesser of:
- 90% of your current year’s original tax liability reduced by certain credits (Use the Find a Form search on our website to locate Form EST, Additional Charge for Underpayment of Tax forms for the year you need).
- 100% of your prior year’s total Minnesota tax liability (from line 8 of your 2020 Form M3, or line 9 of your 2020 Form M8)
The payments must be in four equal installments and made by the applicable due date.
Will the entity be subject to the Additional Tax Charge (ATC) if the entity decides to elect PTE tax after the due date of one or more estimated payments?
The entity will not be subject to ATC if the entity’s payments during the year are equal to or greater than the lesser of:
- 90% of your current year’s original tax liability reduced by certain credits (Use the Find a Form search on our website to locate Form EST, Additional Charge for Underpayment of Tax forms for the year you need).
- 100% of your prior year’s total Minnesota tax liability (from line 8 of your 2020 Form M3, or line 9 of your 2020 Form M8)
The payments must be in four equal installments and made by the applicable due date. If Form EST results in ATC and you believe you have reasonable cause for the underpayment, you may request abatement of the ATC.
Can I change my mind about electing PTE tax if the entity has made estimated payments that include estimated PTE tax?
As long as the entity has not filed Schedule PTE, Pass-Through Entity Tax, or otherwise elected to file a return and pay the pass-through entity tax, they are not required to make the election even where they have made estimated tax payments for PTE tax.
